How to Calculate End-of-Service Gratuity (UAE Labour Law)

If you employ staff in the UAE—or you’re finishing up a role—understanding end-of-service gratuity is essential. When Calculated correctly, it shows respect for your team,avoids disputes, and protects cash flow,. On the other hand when Calculated poorly, it triggers audit headaches,strained relationships, and penalties,. Consequently This practical guide which is explained in plain, Australian English explains when payment is due,how to calculate 21/30 days,what counts as basic wage,, and who qualifies, with a simple checklist and worked examples.

The rulebook in one minute

Apparently,Under UAE Labour Law Federal Decree-Law No. 33 of 2021, when a foreign full-time worker who completes one year of continuous service is entitled to end-of-service gratuity calculated on basic wage (not allowances). Therefore The statutory formula is:

• 21 days of basic wage for each of the first five years, then
• 30 days of basic wage for each additional year.
  Days of unpaid absence are excluded from service time, and the total gratuity cannot exceed two years’ wage. Employers must pay all entitlements within 14 days from the contract end date.

Because the government portal also summarises this for private-sector employees, it’s a reliable cross-check when preparing settlements. Get details on Accounting Services for JAFZA Companies.

Step 1 — Confirm eligibility

You’ll generally qualify if you:

• Worked continuously for at least 12 months in the private sector;
• Hold a full-time contract (other work types accrue under executive regulations on a prorata basis); and
• Did not leave before completing a full year (probationary months don’t count).

Good to know: usually the year 2021 reforms, resignation no longer reduces statutory gratuity so the same 21/30-day method applies whether employment ends by resignation or termination (subject to lawful deductions for amounts owed).

Step 2 — Identify the basic wage

Your basic wage is the fixed pay excluding housing, transport, sales commissions, overtime, and other allowances. Gratuity is always calculated on basic wage (or average daily wage for piece-rate), not the total package. Using the wrong base is a common source of disputes.

Step 3 — Determine continuous service

Count the start and end dates, excluding unpaid absence. Public holidays and paid leave do count. If there’s a break in service or a transfer, document continuity. The government’s guidance and the Labour Law are clear that unpaid days don’t accrue gratuity.

Step 4 — Apply the 21/30-day formula

Here’s the exact wording you rely on:

• 21 days of basic wage for each year of the first five;
• 30 days of basic wage for each year thereafter;
• Pro-rata for part-years; and
• A hard cap: the total gratuity can’t exceed two years’ wage.

Public explainers (including official media calculators) mirror the same rules if you want to sanity-check your math.

Step 5 — Respect the two-year cap and lawful deductions

No matter how long the tenure, gratuity is capped at two years’ wage. Furthermore, the employer may deduct amounts legally due (for example, court-ordered repayments or net dues confirmed in writing). Don’t conflate this with arbitrary deductions—stick to documented liabilities.

Step 6 — Pay within 14 days of contract end

Apparently,The law requires employers to settle wages and all entitlements (((including end-of-service gratuity)))within 14 days of the contract ending. Moreover Build this into your off-boarding checklist to avoid penalties and employee complaints. Looking to a Accounting Services for DMCC Companies?

Worked:- Example – A, Full-time employee, six years, monthly basic AED 12,000?

• Check against two-year cap: 24 months × 12,000 = AED 288,000 , well below the cap.

• Daily standard wage = AED 12,000 ÷ 30 = AED 400.

• one to five Years: 21 days × 5 = 105 days , 105 × 400 = AED 42,000.

• Sixth Year : 30 days × 1 = 30 days → 30 × 400 = AED 12,000.

• Total gratuity = 42,000 + 12,000 = AED 54,000.
  

1. You can Pay within fourteen days of termination. 

Worked :- Example – B Resignation after 2 years 8 months, Standard AED 8,500

• Total years of working,is more or less equivalent to 2.67 years, excluding the 10 unpaid days.
• Daily = 8,500 ÷ 30 = AED 283.33.

1. Gratuity = twenty one days × 2.67 × 283.33 = AED 15,800 (((rounded))).
2. Settlement due within fourteen  days. Remember to exclude unpaid absence from the service period. Get details on Accounting Services for DMC Companies.

Special topics that trip teams up

1) Part-time and non-full-time arrangements

Part-time and other patterns also accrue end-of-service on a pro-rata basis under the executive regulation. In practice, you convert to a full-time equivalent and apply the same 21/30-day method to the proportionate wage. Document the method you use.

2) Misconduct and loss of entitlements

Gross misconduct can justify termination and loss of notice; however, be careful before assuming gratuity is forfeited. The modern framework keeps gratuity entitlements broadly intact unless a lawful ground removes them—seek legal advice before making zero-gratuity calls. (Always anchor your decision to the Labour Law and executive regulation.)

3) Transfers, mergers, and continuity

If a business changes legal form or ownership, employment continues and the new employer inherits obligations—so gratuity keeps accruing based on the original start date. Keep transfer letters and MOHRE updates tidy.

4) Death in service and payment to beneficiaries

If a worker dies, the employer must arrange payment of accrued entitlements and gratuity to the family promptly (the Law sets strict timelines and process). Sensitivity and documentation matter.

5) Alternative savings schemes

Cabinet decisions can approve alternative systems to the traditional gratuity (for example, funded savings plans). If your group adopts one, ensure you meet the qualifying criteria and onboarding rules. Looking to a Accounting Services for Dubai South Companies?

The clean-calculation checklist

• Confirm eligibility (≥1 year, continuous service).
• Pull basic wage only (exclude allowances/commissions).
• Exclude unpaid absence from service days.
• Apply 21 days for each year of the first five; 30 days for subsequent years; pro-rata partial years.
• Check the two-year cap.
• Settle within 14 days of contract end and document any lawful deductions.

For a quick sense check, compare your number with a public calculator from reputable media, but always anchor your final settlement to the statutory wording.

Common mistakes & how to avoid them

1. 1. Using total salary instead of basic wage → overpayment risk and precedent.
   2. Forgetting unpaid absence → inflates service period.

• Applying old “resignation reductions” abolished under the current framework; also use the standard 21/30-day method.
• Missing the two-year cap breaches the internal policy and law.

Paying late (after 14 days) potential sanctions and complaint risk. Get details on Accounting Services for DAFZ Companies.

How Sharp Accounting can help

Usually We review draft settlement memos,build a repeatable 21/30-day calculator, correct the basic-wage base, and payroll files and contracts, that stand up to MOHRE scrutiny. Moreover, We also train HR on 14-day payment obligations,deductions, and unpaid absence rules, so your off-boarding is fair,compliant, and quick.

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Calculating End-of-Service Gratuity Under UAE Labour Law

The UAE system is clear once you strip it back: use basic wage, count continuous service (excluding unpaid absence), apply 21/30 days, honour the two-year cap, and pay within 14 days. Do that, and your settlements will be fast, fair, and compliant—every time. If you’d like our ready-to-use calculator and a one-page policy template, the Sharp Accounting team can set you up in a single session.